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penalty.3 Petitioners filed a timely petition for review of
respondent’s determination.
In February 2006, petitioner filed suit against her father
and Mr. Falcon in United States District Court alleging that they
“fraudulently and unlawfully converted the proceeds” of the
annuity contract. The complaint states in part: (1) Mr. Falcon
told petitioner that the annuity proceeds, in fact, belonged to
Mr. Knight; (2) Mr. Falcon instructed petitioner to write the
check for $415,000 in order to return the proceeds to Mr. Knight;
and (3) petitioner did not know she was a beneficiary of the
annuity contract until respondent began examining petitioners’
2003 tax return.
Discussion
In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears
the burden of showing that the determinations are in error. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Pursuant
to section 7491(a), the burden of proof as to factual matters
shifts to the Commissioner under certain circumstances.
Petitioners have neither alleged that section 7491(a) applies nor
established their compliance with the requirements of section
7491(a)(2)(A) and (B) to substantiate items, maintain records,
3 We assume the difference between the $53,886 taxable
amount shown on the information return and the $53,885 listed in
the notice of deficiency is due to rounding.
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Last modified: November 10, 2007